For the last few years, Canada has had a relatively boring cannabis market, with the only real excitement being when the federal government makes political rather than business-related news. The main reason for this is that this country’s cannabis market is dominated by the two companies with the highest market caps—Canopy Growth Corp. ($TWM) ($CGC) ($WEED) ($CGC.A) ($WEED.TO) ($WEED.C) ($WEED.B), and Aurora Cannabis ($ACBFF) ($ACB) ($ACBFF.V) ($ACBFF.V) ($ACBFF.C) ($ACBFF.C). As it turns out, these two companies are backed by
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At the moment, Health Canada has announced that they will be allowing exports of medical cannabis. The list of approved companies will be announced in the coming weeks, but one Canadian company is uniquely positioned to be one of them.
In recent months, shares of TerrAscend, a small marijuana retailer, have been dragged down by a lack of movement among legislators this summer, as federal cannabis legislation took a second seat to concerns like infrastructure. Its falls may be short-lived.
Gage gives TerrAscend a strong foothold in Michigan, according to Ahrens. “It went unnoticed by many, but I believe it is a significant step. I believe it is the beginning of a large wave of mergers and acquisitions in the United States.”
Ahrens is the manager of the AdvisorShares Pure US Cannabis ETF (MSOS), as well as its worldwide counterpart, AdvisorShares Pure Cannabis ETF (MSOS) (YOLO). Green Thumb Industries (GTBIF), Curaleaf Positions (CURLF), Trulieve Cannabis (TCNNF), and Cresco Labs (CRLBF) are the top four holdings in the U.S. cannabis-focused fund, with TerrAscend placing seventh and accounting for 5.3 percent of the portfolio.
TerrAscend, according to Ahrens, deserves greater attention, particularly because it’s selling at only 2.9 times fiscal 2022 sales estimates. Green Thumb is trading at 5.3 times fiscal 2022 sales forecasts, while Curaleaf is trading at 4.3 times next year’s estimates. TerrAscend’s stock fell 2.8 percent to $6.57 on Wednesday. In 2021, they will be down 35%.
“I really enjoy all of those companies,” Ahrens adds. “TerrAscend is one of my holdings just underneath them. It’s in my fund’s top 10, but once coupled with the Gage purchase, it’ll quickly climb up the ownership ladder.”
Ahrens admires the company’s management team, which includes Executive Chairman Jason Wild, in addition to the purchase and license agreement with the famous Cookies brand. Wild contributes to the company’s solid balance sheet, which has $154.2 million in cash and cash equivalents against $74.1 million in current liabilities, according to Ahrens. JW Asset Management, which is controlled by Wild, has significant interests in both Gage and TerrAscend. Wild, as well as Richard Mavrinac, a director on both boards, didn’t attend the meeting when the deal was debated and authorized, according to the businesses, and didn’t vote on it.
Despite the fact that the stock has dropped in line with its rivals, Ahrens thinks there is a mismatch between the company’s financials and the response to management’s most recent quarterly report in August, in which it retracted guidance. The brewery Gage purchase, according to Ahrens, may have influenced the decision.
“I believe the merged businesses’ future is extremely bright, and this has not been baked into the price,” Ahrens says. “That’s why I believe this is one of the most underappreciated.”
Shares of U.S. cannabis operators have fallen after a big run-up last autumn, as private investors became impatient for government cannabis reform, according to Ahrens, though he thinks change is on the way. Senate Majority Leader Chuck Schumer (D., N.Y.) announced his intention to decommission the facility in July, but infrastructure and wider budget talks have taken precedence.
Protections for bankers that serve plant-touching companies in places where cannabis is legal would be a straightforward remedy with bipartisan support that would instantly help U.S. operations. Another sticking point is the possibility of US companies to list their stock on the New York Stock Exchange or Nasdaq, which is already available to Canadian companies.
TerrAscend stands out among its competitors in this regard. Despite the fact that it is headquartered in Mississauga, Ontario, and is licensed in Canada, the business is compelled to list shares in Canada and trade over-the-counter in the United States due to its activities there. It also has a complex relationship with Canopy Growth (CGC), a cannabis company in which brewer Constellation Brands (STZ) has a majority interest.
Canopy has a complex agreement via warrants for an approximately 20% interest in TerrAscend that is dependent on changes in U.S. cannabis regulations, despite the fact that it can’t control an American operator directly. TerrAscend was dubbed “a critical component of our U.S. ecosystem strategy” by Canopy CEO David Klein in February.
“For anybody who is interested in whether Canadians will have access to the United States after reforms are implemented, TerrAscend, because of their Canopy connection, could truly be in the driver’s seat, if that ever happens,” Ahrens said.
TerrAscend is an interesting option on both the US and Canadian teams for those debating their strengths and shortcomings.
The U.S. is one of eight countries throughout the world where the use of marijuana remains illegal on the federal level, but as recent studies show, there is great potential for cannabis to be used for medical purposes. Now, the U.S. House of Representatives has kicked off a debate on whether to allow research on the uses of marijuana for medical purposes, with one of the leading contenders being the University of Mississippi.. Read more about terrascend stock news and let us know what you think.
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